Forex today: Dollar tops the board on retail sales, recession pundits silenced, for now

Forex today was boosted by some impressive data out of the US that goes a long way to disprove the recession pundits that have emerged this week following an inversion of the US yield curve. The Dollar staged a strong bid from the 97.80s to a high of 98.24 - However, US yields continued to fall.

US 2-year treasury yields dropped from 1.58% to 1.46% which was the lowest since 2017 while the 10-year yield fell from 1.59% to 1.47% which was the lowest since 2016. On the longer end of the curve, the 30-year fell from 2.02% to 1.91% - which was yet another record low. Analysts at Westpac noted that markets are "pricing 34bp of easing at the 19 September Fed meeting, and a terminal rate of 0.97% (Fed funds rate currently 2.13%)."

A big day in US data:

Retails sales was a very promising and timely release for the Dollar which has otherwise been defending its self against a barrage all of the pessimism of late. The July retail sales climbed +0.7% MoM vs an estimate of +0.3% and +1.0% MoM for the core control group (est. +0.4%). 

US July industrial production was not so good, but was largely ignored although it slipped -0.2% MoM against estimates of +0.1% MoM. The prior month was revised to +0.2% from flat. August NAHB homebuilder sentiment survey index rose to 66 versus expectations of unchanged at 65. June business inventories were flat. The Atlanta Fed raised its Q3 GDPNow forecast from 1.85% to 2.16% annualised pace.

On the geopolitical front, the Chinese came back with some comments which upset the markets, stating that the US had violated prior consensus and that China would take countermeasures on US. Meanwhile, there was some talk over the European Central Bank which weighed on the euro and helped to lift the Dollar, like a shot in the arm. ECB’s Rehn (Finland) said in an interview with DJ/WSJ that they were preparing for substantial stimulus in September. 

Currency action:

Analysts at Westpac summed up the currency action as follows:

EUR/USD fell from 1.1155 to around 1.1100, hurt by the ECB comments. 
GBP/USD squeezed above 1.2140 then slid back to 1.2080. 
USD/JPY was choppy either side of 106.00. 
AUD/USD outperformed, preserving gains following yesterday’s solid jobs data, between 0.6765 and 0.6790. 
NZD/USD ranged between 0.6430 and 0.6450. AUD/NZD preserved only 20 pips of yesterday’s jobs-driven gain, easing to 1.0510.

Key notes from Wall Street:

Wall Street ends mixed, DJIA breaks August lows but closes in the green